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Christina Romer to chair the CEA
Via Greg Mankiw. She understands the Great Depression very well. Here are previous MR entries on Christina Romer, mostly touching on macroeconomics. I can't vouch for her managerial or political abilities one way or the other, but intellectually this is a very good pick. Here is one report on the announcement.
Here is the National Journal on the work of Christina and David Romer on fiscal policy:
At the same time that Obama is calling for higher income taxes on people making $250,000 or more, the Romers have found that tax increases are generally bad for economic growth and that they primarily discourage investment -- the supply-side argument that conservatives use to justify tax cuts for the rich. On the other hand, the Romers have shredded the conservative premise that tax cuts eventually force spending reductions (‘starving the beast’). Instead, they concluded that tax reductions lead only to one thing -- offsetting tax increases to recover lost revenue.
Here is the MR entry on that paper, please do read it again to receive a dose of good news. Here is Romer's home page. Here is her soon to be longer Wikipedia page.
Posted by Tyler Cowen on November 24, 2008 at 09:52 AM in Economics | Permalink
Comments
Is this really as good as it sounds? Or is this going to play out like Alan Greenspan with "Gold and Economic Freedom"
Posted by: Matthew Pearson at Nov 24, 2008 10:27:16 AM
On the other hand, the Romers have shredded the conservative premise that tax cuts eventually force spending reductions (‘starving the beast’).
It's not just a conservative premise.
Posted by: Blackadder at Nov 24, 2008 10:29:46 AM
the Romers have shredded the conservative premise that tax cuts eventually force spending reductions
I'm not sure whether any intellectually serious conservatives ever believed this. I classify myself as economically conservative and always thought this was a ludicrous position. Used maybe as a fig leaf by cynical Republicans that wanted to reconcile their big spending with their ideology, but hardly believable.
Of course my thinking on this borders on tautology since I would have trouble classifying anyone who believed in 'starve the beast' as intellectually serious in the first place...
Posted by: bbartlog at Nov 24, 2008 10:32:57 AM
Somewhat related: I have seen some data, such as a chart linked below from Wikipedia, which suggests that the US has amongst the highest top marginal income tax rates in the entire world. On the chart, for instance, it appears that only Sweden, Norway, Denmark, Finland, Belgium, the Netherlands, and a couple others have top marginal income tax rates in the same league as the United States' top taxed areas.
Note that to arrive at this top rate, one must take the top taxing states, such as CA and MA, in addition to the Fed tax rate. I'm also assuming that payroll taxes etc are included in this calculation.
In any event, here is the chart:
http://upload.wikimedia.org/wikipedia/commons/3/35/PIT_in_World_Barry_Kent.png
Posted by: Mercutio.Mont at Nov 24, 2008 10:54:59 AM
BBartlog - I guess Becker, Lazear, Robert Barro and Milton Friedman aren't "intellectually serious in the first place," right?
http://www.accessmylibrary.com/coms2/summary_0286-27909176_ITM
Posted by: jason voorhees at Nov 24, 2008 11:03:18 AM
Just because the historical trend has not been to decrease the size of the government in terms of the amount of resources it consumes doesn't mean we should just give up.
Posted by: josh at Nov 24, 2008 11:45:03 AM
"Additionally, a cut, followed by a reinstatement may not be equivalent to having neither happen in the first place." said Mr. Bobbitt.
Posted by: Andrew at Nov 24, 2008 12:12:46 PM
Her managerial abilities are first-rate. I was her head TA for two semesters in the 600-student principles class and she was amazingly organized, efficient, and effective. The exact opposite of the absent-minded professor. A very nice person too.
Posted by: Peter G. Klein at Nov 24, 2008 1:28:38 PM
@voorhees -
Well, I stand corrected as to the pedigree of the idea. The reasoning still seems ridiculous to me, equivalent to saying 'well, if I run up my credit card bills today I'll be forced to be responsible tomorrow.'. Making it work either requires that some future regime behaves more responsibly (in which case we have to ask why we are holding the current one to a lower standard), or else that some catastrophe will force their hand. In the latter case we would certainly like a little more detail from proponents of the theory as to what sort of trainwreck tomorrow they think will both force reduced spending and be preferable to just not cutting the taxes and not running the deficits today. Friedman just sort of assumes that there is some level of deficits that the public won't tolerate, without going into detail about what sort of pain the public will have to feel before they decide that deficits actually do matter. Passing the buck back to the public this way is a sorry excuse for policy.
Posted by: bbartlog at Nov 24, 2008 2:13:04 PM
Mercutio:
Interesting chart. It's striking how totally and completely uncorrelated that map is to GDP growth. The data keeps telling me that absolute levels of taxation are far less interesting than the structure of taxation (what is taxed, what isn't, how efficient the system is) in terms of driving economic growth.
Posted by: Andrew Edwards at Nov 24, 2008 2:33:34 PM
IIRC, Milton Friedman's argument was that the true cost of government is its spending, and if you give it less revenue, it will spend less.
Posted by: Rich Berger at Nov 24, 2008 4:00:54 PM
Rich Berger --Friedman may have believed that thesis, but the last quarter century of experience has not supported it.
My problem is that government deficit do not hurt government, rather they hurt the private economy. So starve the beast is cutting off your nose to spite your face.
Posted by: spencer at Nov 24, 2008 4:25:18 PM
Christina Romer’s appointment means that we will have at the Council of Economic Advisers an economist with a background in highly relevant economic history and with moderate Keynesian sympathies - just what we need. It is to be hoped that she underatands that one of the key lessons of Keynes is the importance of constructive US leadership in international economic cooperation - including in the international coordination of key economic policies, in building up effective international economic institutions, and in safeguarding free trade. She will be familiar with literature like Donald Moggridge’s biography of Keynes and Donald Markwell’s “John Maynard Keynes and International Relations”, which I think are very helpful in thinking and working our way - nationally and globally - through the present muddle.
Posted by: D S Lamont at Nov 24, 2008 7:45:19 PM
Yikes, more Depression talk.
Posted by: odograph at Nov 24, 2008 8:50:20 PM
No, odograph, it isn't "depression talk". It's about trying to learn from past experience and insight so that we DON'T have to re-live it. Maybe if you read some of the literature I mentioend - like Moggridge and Markwell on Keynes - you would see that this is NOT "depresion talk". Reading Keynes/excellent books on Keynes is empowering, not depressing.
Posted by: D S Lamont at Nov 24, 2008 9:08:59 PM
Romer's first famous paper attacked the view that modern "Keynesian" macro policy actually made the economy any more stable than it had been back in the bad old days of the 19th century. She found that the volatility of the earlier period was exaggerated by data problems--other econ historians went ballistic. It was amusing.
Posted by: srp at Nov 24, 2008 10:13:06 PM
Great post!
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http://www.commoncts.blogspot.com
Posted by: Steve at Nov 24, 2008 10:15:39 PM
"Romers have shredded the conservative premise that tax cuts eventually force spending reductions (‘starving the beast’)"
Does it at least irritate the beast?
Posted by: Andrew at Nov 25, 2008 4:49:42 AM
Dr. C,
Maybe this is a good time to bring David Romer to GMU as a visiting professor? After all, he might want to be close to his wife during her time in D.C.
E
Posted by: E at Nov 25, 2008 1:35:45 PM
The National Journal might have read Romer and Romer 2007 more closely. They state that tax increases for countercyclical or deficit reducing reasons may promote growth, due to positive changes in expectations and confidence.
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